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                                                                   EXHIBIT 10.78

                          CADENCE DESIGN SYSTEMS, INC.
                              EMPLOYMENT AGREEMENT
                             WITH MICHAEL J. FISTER

      THIS AGREEMENT (this "Agreement") is made effective as of May 12, 2004
(the "Effective Date"), between CADENCE DESIGN SYSTEMS, INC., a Delaware
corporation (the "Company"), and Michael J. Fister ("Executive").

      WHEREAS, the Company is engaged in the electronic design automation
software business; and

      WHEREAS, the Company desires to secure the services of Executive as
President and Chief Executive Officer, and Executive desires to perform such
services for the Company, on the terms and conditions as set forth herein.

      NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements set forth below, it is mutually agreed as follows:

1.    TERM AND DUTIES.

      1.1   EFFECTIVE DATE. The Company hereby employs Executive and Executive
hereby accepts employment pursuant to the terms and provisions of this Agreement
commencing on the Effective Date. Executive thereafter shall be employed on an
at will basis, meaning that either Executive or the Company may terminate
Executive's employment at any time, with or without Cause (as defined in Section
4.2 hereof), in the manner specified herein.

      1.2   SERVICES.

            (a)   Executive shall have the title President and Chief Executive
Officer ("CEO"). Executive's duties will be assigned to Executive from time to
time by the Board of Directors of the Company (the "Board"). Executive shall
report directly to the Board.

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            (b)   During his employment with the Company as CEO, the Company
shall recommend Executive's membership on the Board to the Board's Corporate
Governance and Nominating Committee.

            (c)   Executive shall be required to comply with all applicable
company policies and procedures, as such shall be adopted, modified or otherwise
established by the Company from time to time.

      1.3   SERVICES TO BE EXCLUSIVE. During his employment with the Company,
Executive agrees to devote his full productive time and best efforts to the
performance of Executive's duties hereunder. Executive further agrees, as a
condition to the performance by the Company of each and all of its obligations
hereunder, that so long as Executive is employed by the Company as CEO pursuant
to the terms of this Agreement, he will not directly or indirectly render
services of any nature to, otherwise become employed by, serve on the board of
directors of, or otherwise participate or engage in any other business without
the Company's prior written consent. Nothing herein contained shall be deemed to
preclude Executive from (i) continuing to serve as a non-employee member of the
Board of Directors of Autodesk, Inc. during the term of his employment with the
Company, and (ii) having outside personal investments and involvement with
appropriate community activities, or from devoting a reasonable amount of time
to such matters, provided that they shall in no manner interfere with or
derogate from Executive's work for the Company.

      1.4   OFFICE. The Company shall maintain an office for Executive at the
Company's corporate headquarters, which currently are located in San Jose,
California.

2.    COMPENSATION.

      The Company shall pay to Executive, and Executive shall accept as full
consideration for his services hereunder, compensation consisting of the
following:

      2.1   BASE SALARY. The Company shall initially pay Executive a base salary
of Eight Hundred Thousand Dollars ($800,000) per year ("Base Salary"), payable
in

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installments in accordance with the Company's customary payroll practices, less
such deductions and withholdings required by law or authorized by Executive. The
Board or the Compensation Committee of the Board (the "Compensation Committee")
shall review the amount of the Base Salary from time to time, but no less
frequently than annually. Any increase approved during the first four (4) months
of the Company's fiscal year shall become retroactively effective as of the
beginning of such fiscal year, and any increase approved thereafter shall become
effective on the date determined by the Board or the Compensation Committee, as
appropriate.

      2.2   BONUS. Executive shall participate in the Company's Senior Executive
Bonus Plan or its successor (the "Bonus Plan") at an annual target bonus of one
hundred percent (100%) of Executive's Base Salary (the "Target Bonus") for the
Company's fiscal year with respect to which such bonus shall be determined
pursuant to the terms of such Bonus Plan (the criteria for earning a bonus
thereunder are set annually by the Compensation Committee). For fiscal 2004,
Executive shall be guaranteed a bonus equal to the amount of annual Base Salary
paid to Executive for the portion of the year that Executive was employed by the
Company. The Board or the Compensation Committee shall review the amount of the
Target Bonus from time to time, but no less frequently than annually. The Board
or the Compensation Committee may choose, in its sole discretion, to approve a
bonus payment in excess of 100% of Executive's Base Salary for any fiscal year.

      2.3   SIGN-ON BONUS.

      The Company shall pay Executive a sign-on bonus of $1,000,000, 50% of
which shall be paid within thirty (30) days after the Effective Date and 50% of
which shall be paid on the earliest to occur of:

      (i)   the date which is 180 days after the Effective Date,

      (ii)  the termination of Executive's employment as the result of a
            Permanent Disability (as defined in Section 4.4 hereof) or death,
            and

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      (iii) the termination of Executive's employment without Cause (as defined
            in Section 4.2 hereof) or as a result of an event constituting a
            Constructive Termination (as defined in Section 4.3 hereof);

      provided, however, that Executive shall not receive any such payment if
Executive voluntarily terminates his employment for any reason other than a
Constructive Termination (as defined in Section 4.3 hereof) or is terminated for
Cause (as defined in Section 4.2 hereof) before the applicable payment date.

      2.4   EQUITY GRANTS.

            (a)   Inducement Grants. As an inducement to entering into this
Agreement, Executive shall receive a grant of restricted stock and stock options
on the Effective Date, as follows: (i) Executive shall be entitled to receive
600,000 shares of restricted stock pursuant to the Company's 1993 Nonstatutory
Stock Incentive Plan and/or the Company's 2000 Nonstatutory Equity Incentive
Plan, such grant of restricted shares to vest over three (3) years, with 33 1/3%
of the shares vesting at the end of each full year of Executive's employment
over the three-year period measured from the Effective Date, and be subject to
such other terms and conditions as shall be documented in a restricted stock
agreement, substantially in the form attached hereto as Exhibit A, which
Executive shall execute and deliver to the Company concurrently with the grant
of such shares; and (ii) Executive shall receive a grant of 3,000,000 options
for Company common stock pursuant to the Company's 2000 Nonstatutory Equity
Incentive Plan, such option grant to have an exercise price equal to the average
of the high and low prices (as published by the NYSE) of Company stock on the
date of grant, and to vest over four years, with 25% of the options vesting at
the end of Executive's first full year of employment measured from the Effective
Date and the remainder vesting over the next 36 months in equal amounts each
month, and be subject to such other terms and conditions as shall be documented
in the option grant

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agreement, which shall be in the Company's customary form to be executed and
delivered by Executive concurrently with such grant.

            (b)   Subsequent Grants. After the inducement grants described
above, Executive shall be eligible to receive grants of either restricted stock
or stock options, or both, as the Compensation Committee may determine from time
to time. All stock options shall be granted at one hundred percent (100%) of the
fair market value of the Company's common stock on the date of grant, except as
otherwise mandated by applicable law or regulations. Any awards shall vest in
accordance with the Company's vesting policy for additional grants to executive
officers of the Company in effect on the date of the grant by the Compensation
Committee, and shall contain such other terms and conditions as shall be set
forth in the agreement documenting the grant.

      2.5   INDEMNIFICATION. In the event Executive is made, or threatened to be
made, a party to any legal action or proceeding, whether civil or criminal, by
reason of the fact that Executive is or was a director or officer of the Company
or serves or served any other corporation or other person which is at least
fifty percent (50%) or more owned by the Company or controlled by the Company in
any capacity at the Company's request, Executive shall be indemnified by the
Company, and the Company shall pay Executive's related expenses when and as
incurred, all to the fullest extent not prohibited by law, as more fully
described in the form of Indemnification Agreement attached hereto as Exhibit B.

3.    EXPENSES AND BENEFITS.

      3.1   REASONABLE AND NECESSARY BUSINESS EXPENSES. In addition to the
compensation provided for in Section 2 hereof, the Company shall reimburse
Executive for all reasonable, customary and necessary expenses incurred in the
performance of Executive's duties hereunder. Executive shall first account for
such expenses by submitting a signed statement itemizing such expenses prepared
in accordance with the policy set by the Company for reimbursement of such
expenses.

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The amount, nature and extent of reimbursement for such expenses shall always be
subject to the control, supervision and direction of the Company's Chief
Financial Officer, and/or its General Counsel, and the Board.

      3.2   BENEFITS. During Executive's full-time employment with the Company,
pursuant to this Agreement:

            (a)   Executive shall be eligible to participate in the Company's
standard U.S. health insurance, life insurance and disability insurance plans,
as such plans may be modified from time to time;

            (b)   Executive shall be eligible to participate in the Company's
qualified and non-qualified retirement and other deferred compensation programs
pursuant to their terms, as such programs may be modified from time to time; and

            (c)   Executive shall be eligible to participate in any other
benefit plan or arrangement implemented for other executive officers of the
Company for which he satisfies the same eligibility requirements applicable to
those executive officers.

      3.3   RELOCATION BENEFITS.

            (a)   During the first two weeks of Executive's employment with the
Company, the Company shall reimburse Executive for reasonable and actual
expenses incurred by him and his wife for travel, lodging and meals in
connection with their temporary relocation to the San Jose, California area.

            (b)   During the next three months of Executive's employment with
the Company as CEO, the Company shall reimburse Executive for all (i) reasonable
and actual costs associated with leasing a furnished apartment, and (ii) such
other reasonable and actual relocation expenses agreed to by the Company.

            (c)   During the next 24 months of Executive's employment with the
Company as CEO, the Company shall provide Executive with (i) a $5,000 per month
housing allowance, and (ii) reimbursement of such other reasonable and actual
relocation expenses agreed to by the Company.

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            (d)   During the first two years of Executive's employment with the
Company as CEO, Executive shall be entitled to reimbursement for the reasonable
and actual cost of moving his household goods and certain other personal items
to the San Jose, California area pursuant to the terms of the Company's Domestic
Relocation Policy then in effect.

            (e)   If during the first five years of Executive's employment with
the Company as CEO he sells his home in Portland, Oregon and/or buys a new home
in the San Francisco/San Jose, California area (or any other location in
proximity to the Company's then corporate headquarters), the Company (i) will
reimburse Executive for his reasonable and documented closing costs (including
title search, title insurance, transfer taxes, escrow fees, appraisals, points
and other loan origination fees) associated with such sale and/or purchase and
(ii) will absorb and/or reimburse Executive for the broker's commission paid in
connection with the sale of Executive's home in Portland, Oregon, provided that
Executive complies and cooperates with the Company's Domestic Relocation Policy
then in effect, including, but not limited to, using a third party reasonably
satisfactory to the Company to handle such sale.

            (f)   To the extent any of the relocation benefits provided by this
Section 3.3 are included in Executive's gross income for tax purposes, Executive
shall receive an additional amount equal to (x) the amount of the relocation
benefits included in Executive's income (net of any related income tax deduction
allowable to Executive for the underlying expenses) divided by the remainder of
1 minus TR (as defined below), minus (y) the amount included in Executive's
income (as so netted). For purposes of this Section 3.3(f), "TR" shall equal the
highest effective marginal tax rate taking into account all applicable federal,
state and local income taxes (and reflecting the value of lost or phased out
itemized deductions) and applicable employment taxes all assumed at the highest
rate otherwise applicable to Executive.

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      3.4   SARBANES-OXLEY ACT LOAN PROHIBITION. To the extent that any company
benefit, program, practice, arrangement, or any term of this Agreement would or
might otherwise result in the Company's extension of a credit arrangement to
Executive not permissible under the Sarbanes-Oxley Act of 2002 (a "Loan"), the
Company will use reasonable efforts to provide Executive with a substitute for
such Loan, which is lawful and of at least equal value.

4.    TERMINATION OF EMPLOYMENT AS CEO.

      4.1   GENERAL. Executive's employment by the Company as CEO under this
Agreement shall terminate immediately upon delivery to Executive of written
notice of termination by the Company, upon the Company's receipt of written
notice of termination by Executive at least thirty (30) days before the
specified effective date of such termination, or upon Executive's death or
Permanent Disability (as defined in Section 4.4 hereof); provided, however, that
only five (5) business days' written notice shall be required under this Section
4.1 in connection with Executive's voluntary termination of his employment in
connection with a Constructive Termination (as defined in Section 4.3 hereof).
In the event of such termination, except where Executive is terminated for Cause
(as defined in Section 4.2 hereof) or as the result of a Permanent Disability or
death, or where Executive voluntarily terminates his employment for any reason
other than in connection with a Constructive Termination, and upon execution by
Executive at or about the effective date of such termination of the Executive
Transition and Release Agreement, in the form attached hereto as Exhibit C (the
"Transition Agreement"), the Company shall provide Executive with the benefits
set forth in the Transition Agreement.

      4.2   DEFINITION OF CAUSE. For purposes of this Agreement, "Cause" shall
be limited to (1) Executive's gross misconduct or fraud in the performance of
his services hereunder; (2) Executive's conviction or guilty plea or plea of
nolo contendere with respect to any felony; (3) Executive's engaging in any
material act of theft or other

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material misappropriation of company property in connection with his employment;
(4) Executive's material breach of this Agreement after written notice delivered
to Executive identifying such breach and his failure to cure such breach, if
curable, within thirty (30) days following delivery of such notice; (5)
Executive's material breach of the Proprietary Information Agreement (as defined
in Section 8 hereof) after written notice delivered to Executive identifying
such breach and his failure to cure such breach, if curable, within thirty (30)
days following delivery of such notice; or (6) Executive's material breach of
the Company's Code of Business Conduct as such code may be revised from time to
time after written notice delivered to Executive identifying such breach and his
failure to cure such breach, if curable, within thirty (30) days following
delivery of such notice. In no event may the Company terminate Executive's
employment for Cause unless and until there shall have been delivered to
Executive a copy of a resolution duly adopted by the affirmative vote of at
least a majority of the Board at a meeting of the Board called and held for the
purpose (after reasonable notice to Executive and an opportunity for Executive,
together with Executive's counsel, to be heard before the Board), finding that
in the good faith opinion of the Board, Executive was culpable for the conduct
constituting "Cause" and specifying the particulars thereof.

      4.3   CONSTRUCTIVE TERMINATION. Notwithstanding anything in this Section 4
to the contrary, Executive may, upon written notice to the Company, voluntarily
end his employment upon or within ninety (90) days following the occurrence of
an event constituting a Constructive Termination (but with at least five (5)
business days' written notice to the Company) and be eligible for the benefits
set forth in the Transition Agreement in exchange for executing and delivering
that agreement in accordance with Section 9.3 hereof. For purposes of this
Agreement, "Constructive Termination" shall mean:

            (a)   a material adverse change, without Executive's written
consent, in Executive's authority, duties, title or reporting relationship to
the Board causing

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Executive's position to be of materially less stature or responsibility, after
written notice delivered to the Company of such change and the Company's failure
to cure such change, if curable, within thirty (30) days following delivery of
such notice; provided, however, that such a material adverse change shall in all
events be deemed to occur if Executive no longer serves as the Chief Executive
Officer of a publicly traded company, unless Executive consents in writing to
such change;

            (b)   a reduction, without Executive's written consent, in
Executive's Base Salary in effect on the Effective Date (or such higher level as
may be in effect in the future) by more than ten percent (10%) or a reduction by
more than ten percent (10%) in Executive's stated Target Bonus in effect on the
Effective Date (or such greater Target Bonus amount as may be in effect in the
future) under the Bonus Plan;

            (c)   a relocation of Executive's principal place of employment by
more than thirty (30) miles, unless Executive consents in writing to such
relocation;

            (d)   any material breach by the Company of any provision of this
Agreement, after written notice delivered to the Company of such breach and the
Company's failure to cure such breach, if curable, within thirty (30) days
following delivery of such notice; or

            (e)   any failure by the Company to obtain the assumption of this
Agreement by any successor to the Company.

      4.4   PERMANENT DISABILITY. For purposes of this Agreement, "Permanent
Disability" shall mean any medically determinable physical or mental impairment
that can reasonably be expected to result in death or that has lasted or can
reasonably be expected to last for a continuous period of not less than twelve
(12) months and renders Executive unable to perform effectively his services
pursuant to this Agreement.

      4.5   CHANGE IN CONTROL.

            (a)   Should there occur a Change in Control (as defined below) and
if within three (3) months before the Change in Control or thirteen (13) months
following

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the Change in Control either (i) Executive's employment under this Agreement is
terminated without Cause or (ii) Executive terminates his employment pursuant to
this Agreement as a result of an event constituting a Constructive Termination,
then, in exchange for executing and delivering the Transition Agreement,
Executive shall be entitled to all of the benefits set forth therein, except
that (i) the payments of salary and bonus described in Section 5 of that
Agreement shall equal two (2) years of Executive's Base Salary and Target Bonus
at the level in effect on the Transition Commencement Date (as defined in such
agreement) or, if greater, at the highest level in effect at any time during the
term of this Agreement; and (ii) all of the unvested options and other stock
awards outstanding and held by Executive on the Transition Commencement Date
shall immediately vest and become exercisable in full on the Transition
Commencement Date.

            (b)   For purposes of this Section 4.5, a Change in Control shall be
deemed to occur upon the consummation of any one of the following events:

                  (i)   any "person" (as such term is used in sections 13(d) and
                        14(d) of the Securities Exchange Act of 1934, as
                        amended) becomes the "beneficial owner" (as defined in
                        Rule 13d-3 of that Act), directly or indirectly, of
                        securities of the Company representing more than fifty
                        percent (50%) of the total voting power represented by
                        the Company's then outstanding voting securities; or

                  (ii)  a change in the composition of the Board occurring
                        within a two-year period, as a result of which fewer
                        than a majority of the directors are Incumbent Directors
                        ("Incumbent Directors" means directors who either (A)
                        are directors of the Company as of the Effective Date,
                        or (B) are elected, or nominated for election, to the
                        Board with the affirmative votes of at least a

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                        majority of the Incumbent Directors at the time of such
                        election or nomination, but will not include an
                        individual whose election or nomination is in connection
                        with an actual or threatened proxy contest relating to
                        the election of directors to the Board);

                  (iii) the consummation of a merger or consolidation of the
                        Company with any other corporation, other than a merger
                        or consolidation in which the holders of the Company's
                        outstanding voting securities immediately prior to such
                        merger or consolidation receive, in exchange for their
                        voting securities of the Company in consummation of such
                        merger or consolidation, securities possessing at least
                        fifty percent (50%) of the total voting power
                        represented by the outstanding voting securities of the
                        surviving entity (or parent thereof) immediately after
                        such merger or consolidation; or

                  (iv)  the consummation of the sale or disposition by the
                        Company of all or substantially all the Company's
                        assets.

      4.6   TERMINATION FOR CAUSE, ON ACCOUNT OF DEATH, PERMANENT DISABILITY, OR
VOLUNTARY TERMINATION. In the event Executive's employment is terminated for
Cause, or on account of death or Permanent Disability, or Executive voluntarily
terminates his employment with the Company other than in connection with a
Constructive Termination, then:

            (a)   Executive will be paid only (a) any earned but unpaid Base
Salary and any outstanding expense reimbursements submitted and approved
pursuant to Section 3.1 hereof, (b) any amount owed to Executive pursuant to
Sections 2.3 and 3.3 hereof, and (c) other unpaid vested amounts or benefits
under the compensation,

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incentive and benefit plans of the Company in which Executive participates, in
each case under this clause (c) as of the effective date of such termination;
and

            (b)   Executive shall not become a party to the Transition Agreement
and shall not be bound by any of the terms and provisions thereof.

5.    EXCISE TAX.

      In the event that any benefits payable to Executive pursuant to the
Transition Agreement ("Termination Benefits") (i) constitute "parachute
payments" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), or any comparable successor provisions, and (ii)
but for this Section 5 would be subject to the excise tax imposed by Section
4999 of the Code, or any comparable successor provisions (the "Excise Tax"),
then Executive's Termination Benefits shall be either (a) provided to Executive
in full, or (b) provided to Executive as to such lesser extent which would
result in no portion of such benefits being subject to the Excise Tax, whichever
of the foregoing amounts, when taking into account applicable federal, state,
local and foreign income and employment taxes, the Excise Tax, and any other
applicable taxes, results in the receipt by Executive, on an after-tax basis, of
the greatest amount of benefits, notwithstanding that all or some portion of
such benefits may be taxable under the Excise Tax. Unless the Company and
Executive otherwise agree in writing, any determination required under this
Section 5 shall be made in writing in good faith by a nationally recognized
accounting firm selected by the Company (the "Accountants"). In the event of a
reduction of benefits hereunder, Executive shall be given the choice of which
benefits to reduce. If Executive does not provide written identification to the
Company of which benefits he chooses to reduce within ten (10) days after notice
of the Accountants' determination, and Executive has not disputed the
Accountants' determination, then the Company shall select the benefits to be
reduced. For purposes of making the calculations required by this Section 5, the
Accountants may make reasonable assumptions and approximations concerning

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applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of the Code, and other applicable legal authority.
The Company and Executive shall furnish to the Accountants such information and
documents as the Accountants may reasonably request in order to make a
determination under this Section 5. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section 5.

      If, notwithstanding any reduction described in this Section 5, the
Internal Revenue Service (the "IRS") determines that Executive is liable for the
Excise Tax as a result of the receipt of the payment of benefits as described
above, then Executive shall be obligated to pay back to the Company, within
thirty (30) days after a final IRS determination or in the event that Executive
challenges the final IRS determination, a final judicial determination, a
portion of the payment equal to the "Repayment Amount." The Repayment Amount
with respect to the payment of benefits shall be the smallest such amount, if
any, as shall be required to be paid to the Company so that Executive's net
after-tax proceeds with respect to any payment of benefits (after taking into
account the payment of the Excise Tax and all other applicable taxes imposed on
such payment) shall be maximized. The Repayment Amount with respect to the
payment of benefits shall be zero if a Repayment Amount of more than zero would
not result in Executive's net after-tax proceeds with respect to the payment of
such benefits being maximized. If the Excise Tax is not eliminated pursuant to
this paragraph, Executive shall pay the Excise Tax.

      Notwithstanding any other provision of this Section 5, if (1) there is a
reduction in the payment of benefits as described in this Section 5, (2) the IRS
later determines that Executive is liable for the Excise Tax, the payment of
which would result in the maximization of Executive's net after-tax proceeds
(calculated as if Executive's benefits had not previously been reduced), and (3)
Executive pays the Excise Tax, then the Company shall pay to Executive those
benefits which were reduced pursuant to this

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subsection as soon as administratively possible after Executive pays the Excise
Tax so that Executive's net after-tax proceeds with respect to the payment of
benefits are maximized.

6.    DISPUTE RESOLUTION.

      (a)   Each of the parties expressly agrees that, to the extent permitted
by applicable law and to the extent that the enforceability of this Agreement is
not thereby impaired, any and all disputes, controversies or claims between
Executive and the Company arising under this Agreement (as opposed to the
Transition Agreement), except those arising under Sections 6(d) and 9.10 hereof
or under the Proprietary Information Agreement (as defined in Section 8 hereof),
shall be determined exclusively by final and binding arbitration before a single
arbitrator in accordance with the JAMS Arbitration Rules and Procedures, or
successor rules then in effect, and that judgment upon the award of the
arbitrator may be rendered in any court of competent jurisdiction. This
includes, without limitation, any and all disputes, controversies, and/or claims
arising out of or concerning Executive's employment by the Company as CEO or the
termination of Executive's employment as CEO or this Agreement, and includes,
without limitation, claims by Executive against directors, officers or employees
of the Company, whether arising under theories of liability or damages based on
contract, tort or statute, to the full extent permitted by law. As a material
part of this agreement to arbitrate claims, the parties expressly waive all
rights to a jury trial in court on all statutory or other claims. This Section 6
does not purport to limit either party's ability to recover any remedies
provided for by statute, including attorneys' fees.

      (b)   The arbitration shall be held in the San Jose, California
metropolitan area, and shall be administered by JAMS or, in the event JAMS does
not then conduct arbitration proceedings, a similarly reputable arbitration
administrator. Under such proceeding, the parties shall select a mutually
acceptable, neutral arbitrator from among the JAMS panel of arbitrators. Except
as provided herein, the Federal Arbitration Act

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shall govern the interpretation and enforcement of such arbitration proceeding.
The arbitrator shall apply the substantive law (and the law of remedies, if
applicable) of the State of California, or federal law, if California law is
preempted, and the arbitrator is without jurisdiction to apply any different
substantive law. The parties agree that they will be allowed to engage in
adequate discovery, the scope of which will be determined by the arbitrator,
consistent with the nature of the claims in dispute. The arbitrator shall have
the authority to entertain a motion to dismiss and/or a motion for summary
judgment by any party and shall apply the standards governing such motions under
the Federal Rules of Civil Procedure. The arbitrator shall render an award that
shall include a written statement of opinion setting forth the arbitrator's
findings of fact and conclusions of law. Judgment upon the award may be entered
in any court having jurisdiction thereof. The parties intend this arbitration
provision to be valid, enforceable, irrevocable and construed as broadly as
possible.

      (c)   The Company shall be responsible for payment of the arbitrator's
fees as well as all administrative fees associated with the arbitration. The
parties shall be responsible for their own attorneys' fees and costs (including
expert fees and costs), except as provided in Section 9.14 hereof.

      (d)   The parties agree, however, that damages would be an inadequate
remedy for the Company in the event of a breach or threatened breach of Section
1.3 of this Agreement or any provision of the Proprietary Information Agreement
(as defined in Section 8 hereof). In the event of any such breach or threatened
breach, the Company may, either with or without pursuing any potential damage
remedies, obtain from a court of competent jurisdiction, and enforce, an
injunction prohibiting Executive from violating Section 1.3 of this Agreement or
any provision of the Proprietary Information Agreement (as defined in Section 8
hereof) and requiring Executive to comply with the terms of those agreements.

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7.    COOPERATION WITH THE COMPANY AFTER TERMINATION OF THE EMPLOYMENT PERIOD.

      Following the termination of his full-time employment for any reason
(other than death), Executive shall cooperate with the Company in all matters
relating to the winding up of his pending work on behalf of the Company and the
orderly transfer of any such pending work to other employees of the Company as
may be designated by the Company. Executive also agrees to participate as a
witness in any litigation or regulatory proceeding to which the Company or any
of its affiliates is a party at the request of the Company upon delivery to
Executive of reasonable advance notice and the Company's written obligation to
reimburse Executive for all reasonable and documented expenses incurred in
connection therewith. Furthermore, Executive agrees to return to the Company all
property of the Company, including all hard and soft copies of records,
documents, materials and files relating to confidential, proprietary or
sensitive company information in his possession or control, as well as all other
company-owned property in his possession or control, at the time of the
termination of his full-time employment, except to the extent that the Company
determines that retention of any of such property is necessary, desirable or
convenient in order to permit Executive to satisfy his obligations under this
Section 7 or under the Transition Agreement, after which time Executive shall
promptly return all such retained company property.

8.    PROPRIETARY INFORMATION AGREEMENT.

      Executive shall, on the Effective Date, execute and deliver to the Company
an Employee Proprietary Information and Inventions Agreement, in the form
attached hereto as Exhibit D (the "Proprietary Information Agreement").

9.    GENERAL.

      9.1   WAIVER. Neither party shall, by mere lapse of time, without giving
notice or taking other action hereunder, be deemed to have waived any breach by
the other

                                       17
<PAGE>

party of any of the provisions of this Agreement. Further, the waiver by either
party of a particular breach of this Agreement by the other shall neither be
construed as, nor constitute, a continuing waiver of such breach or of other
breaches of the same or any other provision of this Agreement.

      9.2   SEVERABILITY. If for any reason a court of competent jurisdiction or
arbitrator finds any provision of this Agreement to be unenforceable, the
provision shall be deemed amended as necessary to conform to applicable laws or
regulations, or if it cannot be so amended without materially altering the
intention of the parties, the remainder of this Agreement shall continue in full
force and effect as if the offending provision were not contained herein.

      9.3   NOTICES. All notices and other communications required or permitted
to be given under this Agreement must be in writing and shall be considered
effective either (a) upon personal service or (b) upon delivery by facsimile and
depositing such notice in the U.S. Mail, postage prepaid, return receipt
requested and, if addressed to the Company, in care of the General Counsel at
the Company's principal corporate address, and, if addressed to Executive, at
his most recent address shown on the Company's corporate records or at any other
address that Executive may specify by notice to the Company, or (c) three (3)
days after depositing such notice in the U.S. Mail as described in clause (b) of
this paragraph.

      9.4   COUNTERPARTS. This Agreement may be executed by facsimile and in any
number of counterparts, each of which shall be deemed an original and all of
which taken together constitutes one and the same instrument, and in making
proof hereof it shall not be necessary to produce or account for more than one
such counterpart.

      9.5   ENTIRE AGREEMENT. The parties hereto acknowledge that each has read
this Agreement, understands it, and agrees to be bound by its terms. The parties
further agree that this Agreement, the exhibits to this Agreement, and the
documents, plans and policies referred to in this Agreement (which are hereby
incorporated herein

                                       18
<PAGE>

by reference) constitute the complete and exclusive statement of the agreement
between the parties and supersede all proposals (oral or written),
understandings, representations, conditions, covenants, and all other
communications between the parties relating to the subject matter hereof.

      9.6   GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California, without regard to its conflict of laws principles.

      9.7   ASSIGNMENT AND SUCCESSORS. The Company shall have the right to
assign its rights and obligations under this Agreement to an entity that,
directly or indirectly, acquires all or substantially all of the assets of the
Company. The rights and obligations of the Company under this Agreement shall
inure to the benefit and shall be binding upon the successors and assigns of the
Company. Executive shall not have any right to assign his obligations under this
Agreement and shall only be entitled to assign his rights under this Agreement
upon his death, solely to the extent permitted by this Agreement, or as
otherwise agreed to by the Company.

      9.8   AMENDMENTS. This Agreement, and the terms and conditions of the
matters addressed in this Agreement, may only be amended in writing executed
both by the Executive and the Chairman of the Board and/or the General Counsel
of the Company.

      9.9   TERMINATION AND SURVIVAL OF CERTAIN PROVISIONS. This Agreement shall
terminate upon the termination of Executive's full-time employment for any
reason; provided, however, that the following provisions of this Agreement shall
survive its termination: the Company's and Executive's obligations under Section
7 hereof, the Company's obligations to provide compensation earned through the
termination of the employment relationship, plus all reimbursements to which
Executive is entitled, under Sections 2 and 3 hereof, the Company's and
Executive's obligations under Section 5 hereof, the Company's and Executive's
obligations enumerated in the Transition Agreement, if applicable, the Company's
obligation to indemnify Executive

                                       19
<PAGE>

pursuant to Section 2.5 hereof and the referenced Indemnification Agreement, the
dispute resolution provisions of Section 6 hereof and, to the extent applicable,
this Section 9.

      9.10  FORMER EMPLOYERS. Executive represents and warrants to the Company
that he is not subject to any employment, confidentiality or other agreement or
restriction that would prevent him from fully satisfying his duties under this
Agreement or that would be violated if he did so. Without the Company's prior
written approval, Executive will not:

            (a)   disclose any proprietary information belonging to a former
                  employer or other entity without its written permission;

            (b)   contact any former employer's customers or employees to
                  solicit their business or employment on behalf of the Company
                  in violation of Executive's existing obligations to his former
                  employer; or

            (c)   distribute announcements about or otherwise publicize
                  Executive's employment with the Company.

      Executive shall indemnify and hold the Company harmless from any
liabilities, including reasonable defense costs, it may incur because he is
alleged to have broken any of these promises or improperly revealed or used such
proprietary information or to have threatened to do so, or if a former employer
challenges Executive's entering into this Agreement or rendering services
pursuant to it.

      9.11  DEPARTMENT OF HOMELAND SECURITY VERIFICATION REQUIREMENT. If
Executive has not already done so, he will timely file all documents, if any,
required by the Department of Homeland Security to verify his identity and his
lawful employment in the United States. Notwithstanding any other provision of
this Agreement, if Executive fails to meet any such requirements promptly after
receiving a written request from the Company to do so, his employment will
terminate immediately upon notice from the Company and he will not be entitled
to any compensation from the

                                       20
<PAGE>

Company of any type, and, if already paid by the Company, Executive will be
required to repay the sign-on bonus described in Section 2.3 hereof.

      9.12  HEADINGS. The headings of the several sections and paragraphs of
this Agreement are inserted solely for the convenience of reference and are not
a part of and are not intended to govern, limit or aid in the construction of
any term or provision hereof.

      9.13  REIMBURSEMENT OF EXECUTIVE'S ATTORNEYS' FEES. The Company shall
reimburse, as promptly as practicable after its receipt of documentation
therefor, all of Executive's reasonable and documented attorneys' fees and
expenses in connection with the negotiation, and execution and delivery of, this
Agreement and the exhibits attached hereto.

      9.14  ATTORNEYS' FEES. In the event of any dispute, controversy, claim,
litigation or arbitration arising out of or concerning Executive's employment by
the Company as CEO or the termination of Executive's employment as CEO or this
Agreement, the prevailing party in any such dispute, controversy, claim,
litigation or arbitration shall be entitled to reasonable attorneys' fees
(excluding expert fees and costs).

      9.15  TAXES AND OTHER WITHHOLDINGS. Notwithstanding any other provision of
this Agreement, the Company may withhold from amounts payable hereunder all
federal, state, local and foreign taxes and other amounts that are required to
be withheld by applicable laws or regulations, and the withholding of any amount
shall be treated as payment thereof for purposes of determining whether
Executive has been paid amounts to which he is entitled.

                                       21
<PAGE>

      IN WITNESS WHEREOF, the parties have executed this Agreement on this 12th
day of May, 2004.

CADENCE DESIGN SYSTEMS, INC.                    EXECUTIVE

By:________________________________             ________________________________
         R.L. Smith McKeithen                   Michael J. Fister

Title: Sr. VP & General Counsel

<PAGE>

                                    EXHIBIT A

                       FORM OF RESTRICTED STOCK AGREEMENT

<PAGE>

                          CADENCE DESIGN SYSTEMS, INC.
                  NONSTATUTORY INCENTIVE STOCK AWARD AGREEMENT
              ________ NONSTATUTORY EQUITY INCENTIVE PLAN ("PLAN")

Cadence Design Systems, Inc. (the "Company"), pursuant to the Plan, hereby
grants you an Incentive Stock Award as set forth below. This award is subject to
all of the terms and conditions set forth in this Nonstatutory Incentive Stock
Award Agreement ("Agreement") and in the Incentive Stock Award Terms and the
Plan located on the Cadence Stock Information Website (located at
http://ess.cadence.com); provided, however, that in the event of a conflict
between the terms of this Agreement and the terms of the Plan, the terms of this
Agreement shall prevail.

Grantee:                                             _____________
ID Number:                                           _____________
Nonstatutory Incentive Stock Award Number:           _____________
Date of Award:                                       _____________
Vesting Commencement Date:                           _____________
Number of Shares Subject to Incentive Stock Award:   _____________

VESTING SCHEDULE:  33 1/3% of the shares vest on _________
                   33 1/3% of the shares vest on _________
                   33 1/3% of the shares vest on _________

Acceptance: Your right to the Incentive Stock will be forfeited unless you
deliver to the Company a counterpart of this Agreement together with an
Acknowledgment and Statement of Decision Regarding Section 83(b) Election in the
form attached hereto as Exhibit A, duly executed by you and your spouse, if
applicable, no later than __________, 2004, unless you have received an
extension from the Company in writing.

CADENCE DESIGN SYSTEMS, INC.

By: _____________________________________

Title: ______________________________________

Date: ________ ___, 2004

ACKNOWLEDGED AND AGREED

_________________________________________
Employee

_________________________________________
Spouse

<PAGE>

                          CADENCE DESIGN SYSTEMS, INC.
                    NONSTATUTORY INCENTIVE STOCK AWARD TERMS
                    ______ NONSTATUTORY EQUITY INCENTIVE PLAN

      Pursuant to your Nonstatutory Incentive Stock Award Agreement
("Agreement") and these Nonstatutory Incentive Stock Award Terms (collectively,
your "Incentive Stock Award"), CADENCE DESIGN SYSTEMS, INC., a Delaware
corporation (the "Company"), has granted you an Incentive Stock Award under its
_____ Nonstatutory Equity Incentive Plan (the "Plan") for the number of shares
of Incentive Stock indicated in your Agreement and subject to the restrictions
indicated in your Agreement. The Plan is incorporated herein by reference.
Defined terms not explicitly defined in your Incentive Stock Award but defined
in the Plan shall have the same definitions as in the Plan.

      The details of your Incentive Stock Award are as follows:

1.    INCENTIVE STOCK AWARD. Subject to the provisions of Section 2 hereof and
Section 3 hereof, upon the issuance to you of Incentive Stock hereunder, you
shall have all the rights of a stockholder with respect to such Incentive Stock,
including the right to vote the shares and receive all dividends and other
distributions paid or made with respect thereto.

2.    RESTRICTIONS ON SALE OR OTHER TRANSFER. Each share of Incentive Stock
awarded to you pursuant to this Agreement may not be sold or otherwise
transferred except pursuant to the following provisions:

      a.    The shares shall be held in book entry form with the Company's
transfer agent until the restrictions set forth herein lapse in accordance with
the provisions of Section 3 hereof or until the shares are forfeited pursuant to
paragraph (c) of this Section 2. Notwithstanding the foregoing, you may request
that stock certificates evidencing such shares be issued in your name and
delivered to you, with each such certificate bearing the following legend:

      The shares of Cadence Design Systems, Inc. common stock evidenced by this
      certificate may not be sold or otherwise transferred except pursuant to
      the provisions of the Incentive Stock Agreement by and between Cadence
      Design Systems, Inc. and the registered owner of such shares. Additional
      information on the restrictions imposed under such Incentive Stock
      Agreement may be obtained from the Corporate Secretary of Cadence Design
      Systems, Inc.

<PAGE>

      b.    No such shares may be sold, transferred or otherwise alienated or
hypothecated so long as such shares are subject to the restriction provided for
in this Section 2.

      c.    Upon your termination of employment with the Company or its
subsidiaries for any reason other than those which result in a lapse of
restrictions pursuant to Section 3 hereof, then any such shares as to which the
foregoing restrictions have yet to lapse pursuant to Section 3 shall be
forfeited by you and acquired by the Company at no cost to the Company on the
date of such termination of employment, and you shall forthwith surrender and
deliver to the Company any certificates evidencing such shares.

3.    LAPSE OF RESTRICTIONS

      a.    The restrictions set forth in Section 2 hereof shall lapse (provided
that such shares have not previously been forfeited pursuant to the provisions
of paragraph (c) of Section 2 hereof) as to 33 1/3% of the total number of
shares subject to this Incentive Stock Award upon Grantee's completion of each
year of employment with the Company over the three-year period measured from the
Vesting Commencement Date.

      b.    Notwithstanding the forgoing, the restrictions set forth in Section
2 hereof shall lapse (provided that such shares have not previously been
forfeited pursuant to the provisions of paragraph (c) of Section 2 hereof) upon
all shares that remain subject to the foregoing restrictions if, prior to the
vesting of all of the shares subject to this Incentive Stock Award pursuant to
the schedule described in paragraph (a) of this Section 3, the employment of the
Grantee by the Company or its subsidiaries is terminated on account of death or
permanent and total disability, as determined in accordance with applicable
Company personnel policies.

      c.    Notwithstanding the foregoing, all or a portion of the shares
subject to this Incentive Stock Award shall vest on an accelerated basis, and
the restrictions set forth in Section 2 hereof shall concurrently lapse with
respect to those shares, upon the termination of Grantee's employment as Chief
Executive Officer of the Company under certain prescribed circumstances set
forth in Section 4.5 of the Grantee's Employment Agreement with the Company,
dated as of May 12, 2004, and Sections 4, 5 and 6 of the Executive Transition
and Release Agreement attached as Exhibit C to such Employment Agreement.

      d.    The foregoing notwithstanding, no such lapse of restriction shall
become effective unless and until Grantee or Grantee's legal representative
shall surrender to the Company the certificates representing such shares, if
any, and upon surrender thereof the Company shall cause new certificates
evidencing such shares to be issued and delivered to Grantee or Grantee's legal

<PAGE>

representative, free from the restriction provided for in Section 2 hereof or
any other restrictions on the sale or other transfer of such shares. The
foregoing notwithstanding, no stock certificate shall be delivered to Grantee or
Grantee's legal representative as hereinabove provided unless and until Grantee
or Grantee's legal representative shall have paid to the Company in cash the
full amount of all federal and state withholding or other employment taxes
applicable to the taxable income of Grantee resulting from the lapse of such
restrictions.

4.    NO RIGHTS TO CONTINUED EMPLOYMENT OR SERVICE. Nothing in the Plan or this
Incentive Stock Award shall confer upon you any right to continue in the employ
of the Company or its Affiliates (or to continue acting as a Consultant) or
shall affect the right of the Company or its Affiliates to terminate your
employment with or without cause or the right to terminate your relationship as
a Consultant pursuant to the terms of your consultant agreement with the Company
or its Affiliates.

5.    TAX CONSEQUENCES. Set forth below is a brief summary as of the Date of
Award of the some of the federal tax consequences of our grant of an Incentive
Stock Award to you. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND
REGULATIONS ARE SUBJECT TO CHANGE. YOU SHOULD CONSULT A TAX ADVISOR BEFORE
MAKING ANY TAX ELECTION RELATING TO YOUR AWARD. The income tax consequences of
our grant of Incentive Stock to you depend upon whether or not you make an
election under section 83(b) of the Internal Revenue Code to be taxed upon
grant. To make the election, you must file the statement required under section
83(b) with the Internal Revenue Service no later than 30 days after the grant of
the shares to you. Once made, the election is irrevocable. A suggested form is
available from the Company. Copies of the election must also be attached to your
federal income tax return for the year of the grant and a copy must be provided
to the Company.

      a.    NO SECTION 83(b) ELECTION MADE. If you do not make the section 83(b)
election, our grant of Incentive Stock to you is not a taxable event for you.
Rather, recognition of taxable income is postponed until the restrictions on the
shares lapse -- in other words, each time you vest in any of the shares. At each
such time, you will recognize ordinary income equal to the value (the average of
the high and low price of Company common stock on the New York Stock Exchange on
the day the shares vest, or on the next trading day if the vesting date falls on
a day that is not a trading day) of the Incentive Stock and that amount will be
your basis in those shares. Any dividends with a record date prior to that time
will be taxed to you as ordinary income, not as dividends, when paid. If those
shares are otherwise a capital asset in your hands, any gain or loss on a
subsequent sale or other taxable disposition will be capital gain or loss.

<PAGE>

      b.    SECTION 83(b) ELECTION MADE. If you make the section 83(b) election,
you will recognize ordinary income at the time of our grant of Incentive Stock
to you equal to the value of such shares on the date of the grant determined
without regard to any of the restrictions thereon and that amount will be your
basis in those shares. If those shares are subsequently forfeited before the
restrictions lapse, you will be entitled to no deduction on account thereof. If
those shares are otherwise a capital asset in your hands, any gain or loss on a
sale or other taxable disposition after the restrictions lapse will be capital
gain or loss.

6.    ENFORCEMENT. This Agreement shall be construed, administered and enforced
in accordance with the laws of the State of Delaware.

                                   ACCEPTANCE

      By executing the Agreement, you represent that you are familiar with the
terms and provisions of the Plan and accept your Incentive Stock Award subject
to all of the terms and provisions thereof. You hereby agree to accept as
binding, conclusive and final all decisions or interpretations of the Board of
Directors of the Company upon any questions arising under the Plan.

<PAGE>

                                    EXHIBIT A
                       TO INCENTIVE STOCK AWARD AGREEMENT

                    ACKNOWLEDGMENT AND STATEMENT OF DECISION
                        REGARDING SECTION 83(b) ELECTION

      The undersigned (which term includes the undersigned's spouse) has been
issued ___________[NUMBER OF UNVESTED SHARES] unvested shares (the "Incentive
Stock") of Common Stock of Cadence Design Systems, Inc., a Delaware corporation
(the "Company"), under Section ___ of the Company's ______ Nonstatutory Equity
Incentive Plan (the "Plan"), and is returning to Company a signed Nonstatutory
Incentive Stock Award Agreement (the "Agreement") together with this
Acknowledgment and Statement of Decision Regarding Section 83(b) Election.
Capitalized terms not otherwise defined herein have the meanings set forth in
the Agreement and in the Plan. The undersigned hereby states as follows:

      1.    The undersigned acknowledges receipt of a copy of the Plan, the
Agreement and the Nonstatutory Incentive Stock Terms (the "Terms") relating to
the issuance of such Incentive Stock. The undersigned has carefully reviewed the
Plan, the Agreement and the Terms.

      2.    The undersigned either [check and complete as applicable]:

            (a)   ____ has consulted, and has been fully advised by, the
                  undersigned's own tax advisor,
                  _____________________________________, whose business address
                  is ______________________________, regarding all federal,
                  state and local tax consequences of acquiring the Incentive
                  Stock, including the tax rules governing the issuance, vesting
                  and forfeiture of the Incentive Stock, advisability of making
                  an election pursuant to Section 83(b) of the Internal Revenue
                  Code of 1986, as amended (an "83(b) Election") and the
                  consequences of the sale of shares to pay Withholding
                  Obligations; or

            (b)   ____ has knowingly chosen not to consult such a tax advisor.

      3.    The undersigned hereby states that the undersigned has decided
[check as applicable]:

            (a)   ____ to make an 83(b) Election with respect to the Incentive
                  Stock, and will submit to the Company no later than 30 days
                  following the date hereof an executed 83(b) Election form; or

            (b)   ____ not to make an 83(b) Election with respect to the
                  Incentive Stock.

<PAGE>

      4.    The undersigned acknowledges that, if an 83(b) Election is to be
filed, he/she/they will be solely responsible for the accuracy of the
information set forth in, and the tax consequences of filing, the 83(b)
Election, and for properly filing such election with the Internal Revenue
Service (and any other applicable taxing authority) on a timely basis and
including a copy thereof in the undersigned's income tax return. In addition,
the undersigned understands that the 83(b) Election must be filed no later than
30 days after the date the Incentive Stock is deemed issued, which could be as
early as the date the Company provided you with the Agreement.

      5.    Neither the Company nor any of its affiliates, employees, officers,
directors, attorneys or accountants has made any warranty or representation to
the undersigned with respect to the tax consequences of the undersigned's
acquisition, holding, vesting, or forfeiture of Incentive Stock, the making or
failure to make an 83(b) Election, the sale of shares to pay Withholding
Obligations, or any other tax consequences pertaining to the Plan or the
Agreement. THE COMPANY MAKES NO RECOMMENDATION REGARDING THE ADVISABILITY OF
MAKING AN 83(b) ELECTION, BUT CAUTIONS THAT THERE ARE SIGNIFICANT TAX
CONSEQUENCES THAT WOULD ARISE FROM MAKING THE ELECTION, AND THAT THE AGREEMENT
SHOULD NOT BE SIGNED AND THE ELECTION SHOULD NOT BE MADE WITHOUT A COMPLETE
UNDERSTANDING THOSE CONSEQUENCES. THE UNDERSIGNED ACKNOWLEDGES THAT IT IS THE
UNDERSIGNED'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO ASCERTAIN AND
UNDERSTAND THE TAX CONSEQUENCES OF PARTICIPATING IN THE PLAN AND TO FILE, OR
REFRAIN FROM FILING, ANY 83(b) ELECTION, EVEN IF THE UNDERSIGNED REQUESTS THE
COMPANY OR ITS REPRESENTATIVES TO EXPLAIN THOSE CONSEQUENCES OR MAKE THAT FILING
ON THE UNDERSIGNED'S BEHALF.

Date: ___________________________                 ______________________________
                                                  [NAME]

Date: ___________________________                 ______________________________
                                                  Spouse of [NAME]

<PAGE>

                                    EXHIBIT B

                               INDEMNITY AGREEMENT

<PAGE>

                               INDEMNITY AGREEMENT

      This Indemnity Agreement, dated as of May 12, 2004, is made by and between
Cadence Design Systems, Inc., a Delaware corporation (the "Company"),
and,              the President and Chief Executive Officer of the Company (the
"Indemnitee").

                                    RECITALS

      A.    The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors or officers of corporations unless
they are protected by comprehensive liability insurance or indemnification, due
to increased exposure to litigation costs and risks resulting from their service
to such corporations, and due to the fact that the exposure frequently bears no
reasonable relationship to the compensation of such directors and officers;

      B.    The statutes and judicial decisions regarding the duties of
directors and officers area often difficult to apply, ambiguous, or conflicting,
and therefore fail to provide such directors and officers with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take;

      C.    Plaintiffs often seek damages in such large amounts and the costs of
litigation may be so substantial (whether or not the case is meritorious), that
the defense and/or settlement of such litigation is often beyond the personal
resources of officers and directors;

      D.    The Company believes that it is unfair for its directors and
officers and the directors and officers of its subsidiaries to assume the risk
of large judgments and other expenses that may be incurred in cases in which the
director or officer received no personal profit and in cases where the director
or officer was not culpable;

      E.    The Company recognizes that the issues in controversy in litigation
against a director or officer of a corporation such as the Company or a
subsidiary of the Company are often related to the knowledge, motives and intent
of such director or officer, that he is usually the only witness with knowledge
of the essential facts and exculpating circumstances regarding such matters and
that the long period of time which usually elapses before the trial or other
disposition of such litigation often extends beyond the time that the director
or officer can reasonably recall such matters; and may extend beyond the normal
time for retirement for such director or officer with the result that he, after
retirement or in the event of his death, his spouse, heirs, executors or
administrators, may be faced with limited ability and undue hardship in
maintaining an adequate

                                       1
<PAGE>

defense, which may discourage such a director or officer from serving in that
position;

      F.    Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
individuals to serve as officers and directors of the Company and its
subsidiaries and to encourage such individuals to take the business risks
necessary for the success of the Company and its subsidiaries, it is necessary
for the Company to contractually indemnify its officers and directors and the
officers and directors of its subsidiaries in connection with claims against
such persons in connection with their service, and has further concluded that
the failure to provide such contractual indemnification could result in great
harm to the Company and its subsidiaries and the Company's shareholders;

      G.    The Company desires and has requested the Indemnitee to serve or
continue to serve as a director or officer of the Company and/or the
subsidiaries of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or the
subsidiaries of the Company; and

      H.    The Indemnitee is willing to serve, or to continue to serve, the
Company and/or the subsidiaries of the Company provided that he is furnished the
indemnity provided for herein.

                                    AGREEMENT

      NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:

      1.    DEFINITIONS.

            (a)   COVERED PERSON. For purposes of this Agreement, a "covered
person" shall include the Indemnitee and any heir, executor, administrator or
other legal representative of the Indemnitee following his death or incapacity.

            (b)   EXPENSES. For purposes of this Agreement, "expenses" includes
all direct and indirect costs of any type or nature whatsoever (including,
without limitation, all attorneys' fees and related disbursements and other
out-of-pocket costs) actually and reasonably incurred by the Indemnitee in
connection with either the investigation, defense or appeal of a proceeding or
establishing or enforcing a right to indemnification under this Agreement,
Section 145 or otherwise.

                                       2
<PAGE>

            (c)   PROCEEDING. For the purposes of this Agreement, "proceeding"
means any threatened, pending, or completed action, suit or other proceeding,
whether civil, criminal, administrative, investigative or any other type
whatsoever, and including any of the foregoing commenced by or on behalf of the
Company, derivatively or otherwise.

            (d)   SUBSIDIARY. For purposes of this Agreement, "subsidiary" means
any corporation of which more than 50% of the outstanding voting securities is
owned directly or indirectly by the Company, and one or more other subsidiaries,
or by one or more other subsidiaries.

      2.    AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or continue
to serve the Company and/or its subsidiaries in his present capacity, so long as
he is duly appointed or elected or until such time as he tenders his resignation
in writing, provided, however, that nothing contained in this Agreement is
intended to create any right to continued employment by Indemnitee.

      3.    MAINTENANCE OF LIABILITY INSURANCE.

            (a)   The Company hereby covenants and agrees that, so long as the
Indemnitee shall continue to serve as an officer or director of the Company or
any of its subsidiaries, and thereafter so long as the Indemnitee shall be
subject to any possible proceeding by reason of such service, the Company,
subject to Section 3(b), shall use reasonable efforts to obtain and maintain in
full force and effect directors' and officers' liability insurance ("D&O
Insurance") in reasonable amounts from established and reputable insurers.

            (b)   Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain D&O Insurance if the Company determines in good
faith that such insurance is not reasonably available, the premium costs for
such insurance are disproportionate to the amount of coverage provided, the
coverage provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or the Indemnitee is covered by similar insurance
maintained by a subsidiary of the Company.

      4.    MANDATORY INDEMNIFICATION.

            (a)   RIGHT TO INDEMNIFICATION. In the event a covered person was or
is made a party or is threatened to be made a party to or is involved in any
proceeding, by reason of the fact that the Indemnitee is or was a director,
officer or employee of the Company (including any subsidiary or affiliate
thereof or any constituent corporation or any of the foregoing absorbed in any
merger) or is or was serving at the request of the Company (including such
subsidiary, affiliate or constituent corporation) as a director, officer or
employee

                                       3
<PAGE>

of another corporation, or of a partnership, joint venture, trust or other
entity, including service with respect to employee benefit plans, such person
shall be indemnified and held harmless by the Company to the fullest extent
permitted by applicable law, against all expenses, liability and loss
(including, without limitation, attorneys' fees, judgments, fines, ERISA excise
and other taxes and penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith. Such
indemnification shall continue after the Indemnitee has ceased to serve in such
capacity and shall inure to the benefit of his heirs, executors and
administrators; provided, however, that except for a proceeding pursuant to
Section 7, the Company shall indemnify any such person in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors of the Company.

            (b)   EXCEPTION FOR AMOUNTS COVERED BY INSURANCE. Notwithstanding
the foregoing, the Company shall not be obligated to indemnify a covered person
for expenses or liabilities of any type whatsoever (including, but not limited
to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in
settlement) which have been paid directly to such person by D&O Insurance.

            (c)   PARTIAL INDEMNIFICATION. If a covered person is entitled under
any provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding but not entitled, however, to indemnification for all of
the total amount thereof, the Company shall nevertheless indemnify such person
for such total amount except as to the portion thereof to which the Indemnitee
is not entitled.

      5.    MANDATORY ADVANCEMENT OF EXPENSES. The Company shall pay all
expenses incurred by a covered person, or in defending any such proceeding as
they are incurred in advance of its final disposition; provided, however, that
if the Delaware General Corporations Law then so requires, the payment of such
expenses incurred in advance of the final disposition of such proceeding shall
be made only upon delivery to the Company of an undertaking, by or on behalf of
such covered person, to repay all amounts so advanced if it should be determined
ultimately that such person is not entitled to the payment of such expenses by
the Company.

      6.    NOTICE AND OTHER INDEMNIFICATION PROCEDURES.

            (a)   Promptly after receipt by a covered person of notice of the
commencement of or the threat of commencement of any proceeding, such

                                       4
<PAGE>

person shall, if such person believes that indemnification with respect thereto
may be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.

            (b)   If, at the time of the receipt of a notice of the commencement
of a proceeding, the Company has D&O Insurance in effect, the Company shall give
prompt notice of the commencement of such proceeding to the insurers in
accordance with the procedures set forth in the respective policies. The Company
shall thereafter take all necessary or desirable action to cause such insurers
to pay, on behalf of the covered person, all amounts payable as a result of such
proceeding in accordance with the terms of such policies.

            (c)   In the event the Company shall be obligated to advance the
expenses for any proceeding against the covered person, the Company, if
appropriate, shall be entitled to assume the defense of such proceeding, with
counsel approved by the covered person (such approval not to be unreasonably
withheld), upon the delivery to the covered person of written notice of its
election so to do. After delivery of such notice, approval of such counsel by
the covered person and the retention of such counsel by the Company, the Company
will not be liable to the covered person under this Agreement for any fees of
counsel subsequently incurred by the covered person with respect to the same
proceeding, provided that (i) the covered person shall have the right to employ
separate counsel in any such proceeding at the covered person's expense; and
(ii) if (A) the employment of counsel by the covered person has been previously
authorized by the Company, (B) the covered person shall have reasonably
concluded that there may be a conflict of interest between the Company the
covered person in the conduct of any such defense of (C) the Company shall not,
in fact, have employed counsel to assume the defense of such proceeding, the
fees and expenses of the covered person's counsel shall be at the expense of the
Company.

      7.    RIGHT OF INDEMNITEE TO BRING SUIT. If a claim for indemnification or
advancement of expenses hereunder is not paid in full by the Company within
sixty (60) days after a written claim has been received by the Company, except
in the case of a claim for an advancement of expenses, in which case the
applicable period shall be twenty (20) days, the covered person may at any time
thereafter bring suit against the Company to recover the unpaid amount of the
claim. If successful in whole or in part in any such suit, or in a suit brought
by the Company to recover and advancement of expenses pursuant to the terms of
an undertaking, the covered person shall be entitled to be paid also the expense
of prosecuting or defending such suit. In (i) any suit brought by a covered
person to enforce a right to indemnification hereunder (but not in a suit
brought by a covered person to enforce a right to an advancement of expenses) it
shall be a defense that indemnification is not permitted by applicable law, and

                                       5
<PAGE>

(ii) in any suit by the Company to recover an advancement of expenses pursuant
to the terms hereof, the Company shall be entitled to recover such expenses upon
a final adjudication that indemnification is not permitted by applicable law.
Neither the failure of the Company (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such suit that indemnification of the covered
person is proper in the circumstances, nor an actual determination by the
Company (including its Board of Directors, independent legal counsel or its
stockholders) that indemnification is not proper, shall create a presumption
that the covered person is not entitled to indemnification or, in the case of
such a suit brought by a covered person, be a defense to such suit. In any suit
brought by a covered person to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Company to recover an advancement
of expenses pursuant to the terms of an undertaking, the burden of proving that
the covered person is not entitled to be indemnified, or to such advancement of
expenses, shall be on the Company.

      8.    LIMITATION OF ACTIONS AND RELEASE OF CLAIMS. No proceeding shall be
brought and no cause of action shall be asserted by or on behalf of the Company
or any subsidiary against the Indemnitee, his spouse, heirs, estate, executors
or administrators after the expiration of one year from the act or omission of
the Indemnitee upon which such proceeding is based; however, in a case where the
Indemnitee fraudulently conceals the facts underlying such cause of action, no
proceeding shall be brought and no cause of action shall be asserted after the
expiration of one year from the earlier of (i) the date the Company or any
subsidiary of the Company discovers such facts, or (ii) the date the Company of
any subsidiary of the Company could have discovered such facts by the exercise
of reasonable diligence. Any claim or cause of action of the Company or any
subsidiary of the Company, including claims predicated upon the negligent act or
omission of the Indemnitee, shall be extinguished and deemed released unless
asserted by filing of a legal action within such period. This Section 8 shall
not apply to any cause of action which has accrued on the date hereof and of
which the Indemnitee is aware on the date hereof, but as to which the Company
has no actual knowledge apart from the Indemnitee's knowledge.

      9.    NON-EXCLUSIVITY. The provisions for indemnification and advancement
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee or any covered person may have under any
provision of law, the Company's Certificate of Incorporation or Bylaws, the vote
of the Company's shareholders or disinterested directors, other agreements, or
otherwise, both as to action in his official capacity and to action in another
capacity while occupying his position as an officer, director or employee of the
Company, and the Indemnitee's right hereunder shall continue after the

                                       6
<PAGE>

Indemnitee has ceased to so act and shall inure to the benefit of any heir,
executor, administrator or other legal representative of the Indemnitee.

      10.   INTERPRETATION OF AGREEMENT. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent now or hereafter
permitted by law.

      11.   SEVERABILITY. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable for any reason whatsoever, (i)
the validity, legality and enforceability of the remaining provisions of the
Agreement (including, without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraphs of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to Section 10
hereof.

      12.   MODIFICATION AND WAIVER. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.

      13.   SUCCESSORS AND ASSIGNS. The terms of this Agreement shall bind, and
shall inure to the benefit of, the successors and assigns of the parties hereto.

      14.   NOTICE. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee or (ii) if mailed by
certified or registered mail with postage prepaid, on the third business day
after the mailing date. Addresses for notice to either party are as shown on the
signature page of this Agreement, or as subsequently modified by written notice.

      15.   GOVERNING LAW. This Agreement shall be governed exclusively by and
construed according to the laws of the State of Delaware, as applied to
contracts between Delaware residents entered into and to be performed entirely
with Delaware.

      16.   CONSENT TO JURISDICTION. The Company and the Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of

                                       7
<PAGE>

Delaware for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement.

      17.   GENDER. Use of the masculine pronoun shall be deemed to include
usage of the feminine pronoun where appropriate.

      The parties hereto have entered into this Indemnity Agreement effective as
of the date first above written.

                                            CADENCE DESIGN SYSTEMS, INC.

                                            By:  _______________________________

                                            Its: _______________________________

                                            Address: ___________________________

                                                     ___________________________

                                            INDEMNITEE

                                            By:  _______________________________

                                            Address: ___________________________

                                                     ___________________________

                                       8
<PAGE>

                                    EXHIBIT C

                   EXECUTIVE TRANSITION AND RELEASE AGREEMENT

<PAGE>

                   EXECUTIVE TRANSITION AND RELEASE AGREEMENT

      This Executive Transition and Release Agreement (this "Agreement") is
entered into between Michael J. Fister ("Executive") and Cadence Design Systems,
Inc., a Delaware corporation ("Cadence" or the "Company").

      1.    TRANSITION COMMENCEMENT DATE. As of ((Transition Commencement Date))
(the "Transition Commencement Date"), Executive will no longer hold the position
of President and Chief Executive Officer ("CEO") and will be relieved of all of
Executive's authority and responsibilities in those positions. Executive will be
paid (a) any earned but unpaid base salary for his services as CEO prior to the
Transition Commencement Date and any outstanding expense reimbursements
submitted and approved pursuant to Section 3.1 of Executive's Employment
Agreement with the Company dated as of May 12, 2004 (the "Employment
Agreement"); (b) any amounts owed to Executive pursuant to Sections 2.3 and 3.3
of the Employment Agreement; and (c) other unpaid vested amounts or benefits
under the compensation, incentive and benefit plans of the Company in which
Executive participates, in each case under this clause (c) as of the Transition
Commencement Date. The payment of the foregoing amounts shall be made to
Executive by not later than the next regular payroll date following the
Transition Commencement Date.

      As of the first day of the month following the Transition Commencement
Date, Executive will no longer participate in Cadence's medical, dental, and
vision insurance plans (unless Executive elects to continue coverage pursuant to
COBRA), and will not be eligible for a bonus for any services rendered after
that date, except as expressly provided herein.

      2.    TRANSITION PERIOD. The period from the Transition Commencement Date
to the date when Executive's employment with Cadence pursuant to this Agreement
terminates (the "Transition Termination Date") is called the "Transition Period"
in this Agreement. Executive's Transition Termination Date will be the earliest
to occur of:

            a.    the date on which Executive provides Cadence with his written
                  resignation from his employment with Cadence pursuant to this
                  Agreement;

            b.    the date on which Cadence terminates Executive's employment
                  due to a material breach by Executive of his duties or
                  obligations under paragraph 3(b), 3(c) or 3(d) of this
                  Agreement, after written notice delivered to Executive
                  identifying such breach and his failure to cure such breach,
                  if curable, within thirty (30) days following delivery of such
                  notice; and

            c.    one year from the Transition Commencement Date.

<PAGE>

      3.    DUTIES AND OBLIGATIONS DURING THE TRANSITION PERIOD AND AFTERWARDS.

            a.    During the Transition Period, Executive will assume the
position of ((New Position Title)). In this position, Executive will render
those services requested by Cadence's ((Management Representative)) on an
as-needed basis. Executive's time rendering those services is not expected to
exceed 20 hours per month. Executive shall not be required to perform those
services on the Company's premises and shall instead be permitted to perform
those services at a location determined by Executive. Except as otherwise
provided in paragraph 3(b) of this Agreement, Executive's obligations hereunder
will not preclude Executive from accepting and holding full-time employment
elsewhere.

            b.    As a Cadence ((New Position)), as well as other positions
Executive may have held with Cadence, Executive has obtained extensive and
valuable knowledge and information concerning Cadence's business (including
confidential information relating to Cadence and its operations, intellectual
property, assets, contracts, customers, personnel, plans, marketing plans,
research and development plans and prospects). Executive acknowledges and agrees
that it would be virtually impossible for Executive to work as an employee,
consultant or advisor in the electronic design automation industry without
inevitably disclosing confidential and proprietary information belonging to
Cadence. Accordingly, during the Transition Period, Executive will not, directly
or indirectly, provide services, whether as an employee, consultant, independent
contractor, agent, sole proprietor, partner, joint venture, corporate officer or
director, on behalf of any corporation, limited liability company, partnership,
or other entity or person or successor thereto that (i) is listed on Exhibit A
attached hereto, as modified or amended by Cadence's Board of Directors from
time to time and delivered to Executive prior to the Company's termination of
his employment as CEO or the Company's notifying him of such termination as CEO
(or, in the event Executive terminates his employment as CEO, prior to the date
on which Executive has notified the Company of his decision to terminate such
employment), or (ii) is named as a competitor of Cadence in the most recent
applicable document filed by Cadence before the Transition Commencement Date
with the Securities and Exchange Commission that contains such information;
provided, however, that the number of competitors designated pursuant to clause
(i) above shall not, when added to the competitors designated pursuant to clause
(ii) above, result in the total number of competitors being greater than ten
(10).

            c.    During the Transition Period and for a period of one year
following the Transition Termination Date, Executive will be prohibited, to the
fullest extent allowed by applicable law, and except with the written advance
approval of the then CEO or General Counsel, from voluntarily or involuntarily,
for any reason whatsoever, directly or indirectly, individually or on behalf of
persons or entities not now parties to this Agreement, encouraging, inducing,
attempting to induce, soliciting or attempting to solicit for employment,
contractor or consulting opportunities anyone who is employed at that time, or
was employed during the previous one year, by Cadence or any Cadence affiliate.

                                       2
<PAGE>

            d.    During the Transition Period, Executive will be prohibited, to
the fullest extent allowed by applicable law, and except with the written
advance approval of the then CEO or General Counsel, from directly or
indirectly, individually or on behalf of persons or entities not now parties to
this Agreement, intentionally and knowingly interfering or attempting to
interfere with the relationship or prospective relationship of Cadence or any
Cadence affiliate with any former, present or future client, customer, joint
venture partner, or financial backer of Cadence or any Cadence affiliate.

            e.    Executive will fully cooperate with Cadence in all matters
relating to his employment, including the winding up of work performed in
Executive's prior position and the orderly transition of such work to other
Cadence employees. Executive also agrees to participate as a witness in any
litigation or regulatory proceeding to which the Company or any of its
affiliates is a party at the request of the Company upon delivery to Executive
of reasonable advance notice and the Company's written commitment to reimburse
Executive for all reasonable expenses incurred in connection therewith.

            f.    Executive will not make any statement, written or oral, that
disparages Cadence or any of its affiliates, or any of Cadence's or its
affiliates' products, services, policies, business practices, employees,
executives, officers or directors. The foregoing provision shall not preclude
Executive from making any statements required by law.

            g.    Notwithstanding paragraph 9 hereof, the parties agree that
damages would be an inadequate remedy for Cadence in the event of a breach or
threatened breach by Executive of paragraph 3(b), 3(c), 3(d) or 3(f) hereof. In
the event of any such breach or threatened breach, Cadence may, either with or
without pursuing any potential damage remedies, obtain from a court of competent
jurisdiction, and enforce, an injunction prohibiting Executive from violating
this Agreement and requiring Executive to comply with the terms of this
Agreement.

      4.    TRANSITION COMPENSATION AND BENEFITS. In consideration and
compensation for Executive's services during the Transition Period, Cadence will
provide the following to Executive:

            a.    a monthly salary of $2,000 less applicable tax withholdings
                  and deductions, payable in accordance with Cadence's regular
                  payroll schedule;

            b.    all of the unvested options and other outstanding stock awards
                  held by Executive on the Transition Commencement Date that
                  would have vested over the succeeding twenty four (24) month
                  period had Executive continued to serve as CEO under his
                  Employment Agreement during that period shall immediately vest
                  and become exercisable in full on the Effective Date of this
                  Agreement, and there shall be no further vesting of those
                  options or stock awards during the Transition Period. This
                  acceleration will have no effect on any other provisions of
                  the stock awards;

                                       3
<PAGE>

            c.    Executive's employment pursuant to this Agreement shall be
                  considered a continuation of employee status and continuous
                  service for all purposes under any stock options previously
                  granted to Executive by the Company and outstanding on the
                  Transition Commencement Date; and

            d.    if Executive elects to continue coverage under Cadence's
                  medical, dental, and vision insurance plans pursuant to COBRA
                  following the Transition Commencement Date, Cadence will pay
                  the COBRA premiums for Executive and his qualified
                  beneficiaries during the Transition Period.

Except as so provided or as otherwise set forth in paragraph 6 hereof, Executive
will receive no other compensation or benefits from Cadence in consideration of
Executive's services during the Transition Period.

      5.    TERMINATION PAYMENTS AND BENEFITS. In consideration for Executive's
acceptance of this Agreement, Cadence will provide to Executive within or
commencing within ten (10) business days after the Effective Date (as defined in
paragraph 8 hereof) and after Executive has returned to the Company all hard and
soft copies of records, documents, materials and files relating to confidential,
proprietary or sensitive company information in his possession or control during
his period of employment as CEO, as well as all other company-owned property
then in his possession, the following termination payments and benefits to which
Executive would not otherwise be entitled:

            a.    a lump-sum payment equal to 180% of Executive's annual Base
                  Salary at the highest rate in effect during Executive's
                  employment as CEO, less applicable tax deductions and
                  withholdings; and

            b.    an amount equal to 180% of Executive's annual Target Bonus at
                  the highest target rate in effect during Executive's
                  employment as CEO, less applicable tax deductions and
                  withholdings, payable in twelve (12) monthly pro rata
                  installments, provided that the twelfth payment is contingent
                  upon Executive's further execution of a Release of Claims in
                  the form of Attachment 1 to this Agreement; provided, further,
                  that the Company shall have no further obligation to make any
                  monthly installments after the Transition Termination Date
                  should such date occur pursuant to paragraph 2(a) or 2(b)
                  hereof.

      6.    CHANGE IN CONTROL. If this Agreement is executed by Executive
pursuant to Section 4.5 of the Employment Agreement in connection with a Change
in Control (as defined in Section 4.5 of the Employment Agreement), then the
following adjustments shall be made to paragraphs 4 and 5 hereof:

            a.    all of the unvested options and other outstanding stock awards
                  held by Executive on the Transition Commencement Date shall

                                       4
<PAGE>

                  immediately vest in full and become exercisable on the
                  Transition Commencement Date as to all the underlying shares
                  of the Company's common stock;

            b.    the lump sump payment to be made to Executive pursuant to
                  paragraph 5(a) hereof shall be equal to 200% of Executive's
                  annual Base Salary at the highest rate in effect during
                  Executive's employment as CEO, less applicable tax deductions
                  and withholdings; and

            c.    the amount to be paid to Executive pursuant to paragraph 5(b)
                  hereof shall be equal, in the aggregate, to 200% of
                  Executive's annual Target Bonus at the highest target rate in
                  effect during Executive's employment as CEO, less applicable
                  tax deductions and withholdings.

      7.    GENERAL RELEASE OF CLAIMS.

            a.    Executive hereby irrevocably, fully and finally releases
Cadence, its parent, subsidiaries, affiliates, directors, officers, agents and
employees ("Releasees") from all causes of action, claims, suits, demands or
other obligations or liabilities, whether known or unknown, suspected or
unsuspected, that Executive ever had or now has as of the time that Executive
signs this Agreement which relate to his hiring, his employment with the
Company, the termination of his employment with the Company and claims asserted
in shareholder derivative actions or shareholder class actions against the
Company and its officers and Board of Directors, to the extent those derivative
or class actions relate to the period during which Executive served as CEO. The
claims released include, but are not limited to, any claims arising from or
related to Executive's employment with Cadence, such as claims arising under (as
amended) Title VII of the Civil Rights Act of 1964, the Civil Rights Act of
1991, the Age Discrimination in Employment Act of 1974, the Americans with
Disabilities Act, the Equal Pay Act, the Fair Labor Standards Act, the
California Fair Employment and Housing Act, the California Labor Code, the
Employee Retirement Income and Security Act of 1974 (except for any vested right
Executive has to benefits under an ERISA plan), the state and federal Worker
Adjustment and Retraining Notification Act, and the California Business and
Professions Code; any other local, state, federal, or foreign law governing
employment; and the common law of contract and tort. In no event, however, shall
any claims, causes of action, suits, demands or other obligations or liabilities
be released pursuant to the foregoing if and to the extent they relate to:

                  i.    any amounts or benefits to which Executive is or becomes
entitled to pursuant to the provisions of this Agreement (including, without
limitation, paragraphs 1, 4, 5 and 6 hereof) or pursuant to the provisions
designated in Section 9.9 of the Employment Agreement to survive the termination
of Executive's full-time employment as CEO;

                                       5
<PAGE>

                  ii.   claims for workers' compensation benefits under any of
the Company's workers' compensation insurance policies or funds; and

                  iii.  claims related to Executive's COBRA rights.

            b.    Executive represents and warrants that he has not filed any
claim, charge or complaint against any of the Releasees.

            c.    Executive acknowledges that the payments provided in this
Agreement constitute adequate consideration for the release set forth in this
paragraph 7.

            d.    Executive intends that this release of claims cover all claims
subject to this release, whether or not known to Executive. Executive further
recognizes the risk that, subsequent to the execution of this Agreement,
Executive may incur loss, damage or injury which Executive attributes to the
claims encompassed by this release. Executive expressly assumes this risk by
signing this Agreement and voluntarily and specifically waives any rights
conferred by California Civil Code section 1542 which provides as follows:

      A general release does not extend to claims which the creditor does not
      know or suspect to exist in his favor which if known by him must have
      materially affected his settlement with the debtor.

            e.    Executive represents and warrants that there has been no
assignment or other transfer of any interest in any claim by Executive that is
covered by this release.

      8.    REVIEW OF AGREEMENT; REVOCATION OF ACCEPTANCE. Executive has been
given at least 21 days in which to review and consider this Agreement, although
Executive is free to accept this Agreement anytime within that 21-day period.
Executive is advised to consult with an attorney about the Agreement. If
Executive accepts this Agreement, Executive will have an additional 7 days from
the date that Executive signs this Agreement to revoke that acceptance, which
Executive may effect by means of a written notice sent to both the General
Counsel and the Senior Vice President of Human Resources of Cadence. If this
7-day period expires without a timely revocation, this Agreement will become
final and effective on the eighth day following the date of Executive's
signature will be the "Effective Date" of this Agreement.

      9.    ARBITRATION. Subject to paragraph 3(g) hereof, all claims, disputes,
questions, or controversies arising out of or relating to this Agreement,
including without limitation the construction or application of any of the
terms, provisions, or conditions of this Agreement, will be resolved exclusively
in final and binding arbitration in accordance with the Arbitration Rules and
Procedures, or successor rules then in effect, of Judicial Arbitration &
Mediation Services, Inc. ("JAMS"). The arbitration will be held in the San Jose,
California, metropolitan area, and will be conducted and administered by JAMS,
or in the event JAMS does not then conduct arbitration proceedings, a similarly
reputable arbitration administrator. Executive and Cadence will select a
mutually

                                       6
<PAGE>

acceptable, neutral arbitrator from among the JAMS panel of arbitrators. Except
as provided by this Agreement, the Federal Arbitration Act will govern the
administration of the arbitration proceedings. The arbitrator will apply the
substantive law (and the law of remedies, if applicable) of the State of
California, or federal law, as applicable, and the arbitrator is without
jurisdiction to apply any different substantive law. Executive and Cadence will
each be allowed to engage in adequate discovery, the scope of which will be
determined by the arbitrator consistent with the nature of the claim[s] in
dispute. The arbitrator will have the authority to entertain a motion to dismiss
and/or a motion for summary judgment by any party and will apply the standards
governing such motions under the Federal Rules of Civil Procedure. The
arbitrator will render a written award and supporting opinion that will set
forth the arbitrator's findings of fact and conclusions of law. Judgment upon
the award may be entered in any court of competent jurisdiction. Cadence will
pay the arbitrator's fees, as well as all administrative fees, associated with
the arbitration. Each party will be responsible for paying its own attorneys'
fees and costs (including expert witness fees and costs, if any), except as
provided in paragraph 13 hereof.

      10.   NO ADMISSION OF LIABILITY. Nothing in this Agreement will constitute
or be construed in any way as an admission of any liability or wrongdoing
whatsoever by Cadence or Executive.

      11.   INTEGRATED AGREEMENT. This Agreement, together with the provisions
designated in Section 9.9 of the Employment Agreement to survive the termination
of Executive's full-time employment as CEO, is intended by the parties to be a
complete and final expression of their rights and duties respecting the subject
matter of this Agreement. Except as expressly provided herein, nothing in this
Agreement is intended to negate Executive's agreement to abide by Cadence's
policies while serving as a Cadence employee, including but not limited to
Cadence's Employee Handbook, Sexual Harassment Policy and Code of Business
Conduct, or Executive's continuing obligations under Executive's Employee
Proprietary Information and Inventions Agreement, or any other agreement
governing the disclosure and/or use of proprietary information, which Executive
signed while working with Cadence or its predecessors; nor to waive any of
Executive's obligations under state and federal trade secret laws.

      12.   FULL SATISFACTION OF COMPENSATION OBLIGATIONS; ADEQUATE
CONSIDERATION. Executive agrees that the payments and benefits provided herein,
together with any payments or benefits to which Executive is or may become
entitled to pursuant to the provisions of the Employment Agreement that survive
the termination of Executive's full-time employment as CEO pursuant to Section
9.9 of the Employment Agreement, are in full satisfaction of all obligations of
Cadence to Executive arising out of or in connection with Executive's employment
through the Transition Termination Date, including, without limitation, all
compensation, salary, bonuses, reimbursement of expenses, and benefits.

      13.   ATTORNEYS' FEES. In the event of any dispute, controversy, claim,
litigation or arbitration arising out of or concerning Executive's employment by
Cadence or the termination of Executive's employment or this Agreement, the
prevailing party in any

                                       7
<PAGE>

such dispute, controversy, claim, litigation or arbitration shall be entitled to
reasonable attorneys' fees (excluding expert fees and costs).

      14.   TAXES AND OTHER WITHHOLDINGS. Notwithstanding any other provision of
this Agreement, the Company may withhold from amounts payable hereunder all
federal, state, local and foreign taxes and other amounts that are required to
be withheld by applicable laws or regulations, and the withholding of any amount
shall be treated as payment thereof for purposes of determining whether
Executive has been paid amounts to which he is entitled.

      15.   WAIVER. Neither party shall, by mere lapse of time, without giving
notice or taking other action hereunder, be deemed to have waived any breach by
the other party of any of the provisions of this Agreement. Further, the waiver
by either party of a particular breach of this Agreement by the other shall
neither be construed as, nor constitute, a continuing waiver of such breach or
of other breaches of the same or any other provision of this Agreement.

      16.   MODIFICATION. This Agreement may not be modified unless such
modification is embodied in writing, signed by the party against whom the
modification is to be enforced.

      17.   ASSIGNMENT AND SUCCESSORS. Cadence shall have the right to assign
its rights and obligations under this Agreement to an entity that, directly or
indirectly, acquires all or substantially all of the assets of Cadence. The
rights and obligations of Cadence under this Agreement shall inure to the
benefit and shall be binding upon the successors and assigns of Cadence.
Executive shall not have any right to assign his obligations under this
Agreement and shall only be entitled to assign his rights under this Agreement
upon his death, solely to the extent permitted by this Agreement, or as
otherwise agreed to by Cadence.

      18.   SEVERABILITY. In the event that any part of this Agreement is found
to be void or unenforceable, all other provisions of the Agreement will remain
in full force and effect.

      19.   GOVERNING LAW. This Agreement will be governed and enforced in
accordance with the laws of the State of California, without regard to its
conflict of laws principles.

                                       8
<PAGE>

                             EXECUTION OF AGREEMENT

     The parties execute this Agreement to evidence their acceptance of it.

Dated: __________________.                      Dated:  _______________.

Michael J. Fister                               CADENCE DESIGN SYSTEMS, INC.

___________________________                     By: ____________________________
                                                    Name
                                                    Title
                                       9
<PAGE>

                                  ATTACHMENT 1

                                RELEASE OF CLAIMS

      1.    For valuable consideration, I irrevocably, fully and finally release
Cadence Design Systems, Inc. ("Cadence"), its parent, subsidiaries, affiliates,
directors, officers, agents and employees from all causes of action, claims,
suits, demands or other obligations or liabilities, whether known or unknown,
suspected or unsuspected, that I ever had or now have as of the time that I sign
this Release which relate to my hiring, my employment with Cadence, the
termination of my employment with Cadence and claims asserted in shareholder
derivative actions or shareholder class actions against Cadence and its officers
and Board of Directors, to the extent those derivative or class actions relate
to the period during which I served as CEO. The claims released include, but are
not limited to, any claims arising from or related to my employment with
Cadence, such as claims arising under (as amended) Title VII of the Civil Rights
Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment
Act of 1974, the Americans with Disabilities Act, the Equal Pay Act, the Fair
Labor Standards Act, the California Fair Employment and Housing Act, the
California Labor Code, the Employee Retirement Income and Security Act of 1974
(except for any vested right I have to benefits under an ERISA plan), the state
and federal Worker Adjustment and Retraining Notification Act, and the
California Business and Professions Code; any other local, state, federal, or
foreign law governing employment; and the common law of contract and tort. This
Release is not intended to, and does not, encompass (i) any right to
compensation or benefits that I have under my Executive Transition and Release
Agreement with Cadence (including, without limitation, paragraphs 1, 4, 5 and 6
thereof) or pursuant to those provisions of my Employment Agreement dated as of
May 12, 2004 with Cadence, which, pursuant to Section 9.9 of such Employment
Agreement, survive the termination of my full-time employment as CEO, (ii) any
claims I may have for workers' compensation benefits under any of Cadence's
workers' compensation insurance policies or funds, and (iii) any claims related
to my COBRA rights.

      2.    I intend that this Release cover all claims subject hereto, whether
or not known to me. I further recognize the risk that, subsequent to the
execution of this Agreement, I may incur loss, damage or injury which I
attribute to the claims encompassed by this Release. I expressly assume this
risk by signing this Release and voluntarily and specifically waive any rights
conferred by California Civil Code section 1542 which provides as follows:

      A general release does not extend to claims which the creditor does not
      know or suspect to exist in his favor which if known by him must have
      materially affected his settlement with the debtor.

      3.    I represent and warrant that there has been no assignment or other
transfer of any interest in any claim by me that is covered by this Release.

      4.    I acknowledge that Cadence has given me 21 days in which to consider
this Release and advised me to consult an attorney about it. I further
acknowledge that

<PAGE>

once I execute this Release, I will have an additional 7 days in which to revoke
my acceptance of this Release by means of a written notice of revocation given
to ________. This Release will not be final and effective until the expiration
of this revocation period.

Dated: _______________________.             ____________________________________
                                                     Michael J. Fister

                                            ____________________________________
                                                        Sign Name

                                       2
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                                    EXHIBIT D

                        PROPRIETARY INFORMATION AGREEMENT